SMSFs edge closer to event-based reporting

Summary: From the 1 July 2018 SMSF trustees will be required to report events impacting an individual member's transfer balance on an events basis.

Key take-out: The Tax Office is currently seeking industry feedback on how often SMSFs will be required to report events impacting an individual member's transfer balance.

SMSF trustees will be subject to new event-based reporting to the Australian Tax Office from 1 July 2018 as part of the Federal Government's recently introduced transfer balance cap legislation.

The new reporting rules mean SMSFs will have to file a report with the ATO as often as every month for certain events, although the regulator has just published a position paper that proposes a quarterly reporting option for certain event types.

Trustees will only be required to report to the ATO if a member of their SMSF has an event that impacts their transfer balance account.

The ATO is seeking industry feedback on the regularity of event-based reporting under two proposed options, with that feedback due by mid-September.

The events that are required to be reported are exactly the same under both options.

Under option 1, from 1 July 2018 SMSFs will be required to report most events occurring in relation to their members' transfer balance account 10 business days after the end of the month in which the relevant event occurs.

The exceptions to this, which would need to be reported 28 days after the end of the relevant quarter, would be the commencement of a retirement phase income stream (pension) and the reporting of repayments under a limited recourse borrowing arrangement (LRBA). Those that have exceeded the $1.6 million transfer balance cap and have already received a commutation notice from the ATO requiring them to reduce their pension account balance will also be exempted from reporting.

Under option 2, trustees would initially need to report all events 28 days after the end of the relevant quarter, except for those relating to commutation notices where they have breached the transfer balance cap.

But the ATO adds: “Following an appropriate transition period, SMSFs will then be required to move to reporting all TBC events 10 business days after the end of the month in which a relevant event occurs.

“We consider that an appropriate transition period for SMSFs to move from quarterly to monthly reporting of all TBC events may be two years until the end of 30 June 2020, but welcome your feedback on this point.”

Commenting on the transfer balance cap event-based reporting options, SMSF Association Chief Executive John Maroney said the ATO's move to “soft pedal” any changes by presenting advisors and their clients with two alternative approaches for comment is welcome.

“We are pleased that the ATO has listened to the SMSF industry's immediate concerns and feedback, including ours, regarding event based reporting, and this consultation shows the ATO is willing to work with industry to get the implementation of event based reporting right for SMSFs,” he said.

He added that it was in SMSF trustees' best interests to report information as soon as possible so details can be shared between advisors, providers and members to help prevent any notional earnings accruing on excess transfer balance determinations.

Delays in collecting information can result in trustees being charged interest at 7 per cent per annum above the 90-day, bank bill rate, accruing daily, on excess transfer balance accounts.